German Yields Sink on Le Pen, ECB
24 February 2017 - 1:57PM
Dow Jones News
By Christopher Whittall
LONDON--Short-dated German government bond yields sank to fresh
record lows Friday, as investors seek safe havens ahead of France's
presidential election and the European Central Bank buys up the
country's debt.
The yield on the two-year German government note fell to -0.95%
recently, according to Tradeweb, down around 0.03 of a percentage
point on the day. Yields fall as prices rise. Meanwhile, the yield
premium over similar French government debt has widened to around
0.4 of a percentage point from less than 0.1 of a percentage point
in early January.
Investors have sold down French government bonds amid concerns
that far-right candidate Marine Le Pen could win this spring's
election. Ms. Le Pen favors pulling France out of the euro, a move
that could call into question the future of Europe's monetary
union.
Much of that selling came initially in longer-dated securities,
with the difference between yields on 10-year German bonds and
French bonds widening to the highest level in over four years
earlier this week. Selling has intensified in shorter-dated bonds
as the week progressed.
Analysts say the European Central Bank's is exacerbating the
move as its EUR2.3 trillion ($2.4 trillion) bond-buying program
hoovers up German bonds, causing a shortage.
Underscoring the impact of its bond-buying program, some bonds
the ECB can't buy yield more than bonds that it can. For instance,
German debt maturing in March, which is too short-dated to be
eligible for the program, yields more than the two-year note at
-0.79%. Typically shorter-dated debt yields less.
The fall in two-yield yields has come "as fears regarding a
possible breakup of the eurozone start to resurface against a
backdrop characterized by a shortage of German collateral," said
Mark Dowding, co-head of investment-grade at BlueBay Asset
Management, in an email.
Like many other investors, Mr. Dowding believes a Le Pen victory
is a "tail risk," or unlikely.
But, "there is more scope for sovereign spreads in the region to
widen, rather than tighten in the short term, as it is unlikely
that political uncertainty abates in the next few weeks," he
said.
Write to Christopher Whittall at
christopher.whittall@wsj.com
(END) Dow Jones Newswires
February 24, 2017 08:42 ET (13:42 GMT)
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